Department of Economics

A Swing-State Theory of Trade Protection in the Electoral College

So swing voters vote based on their assessment of candidates’ stance with respect to trade policy over and above any party allegiance?

Despite the commitment of the Bush administration to free trade, having signed numerous free trade agreements whilst in office, a large tariff was levied on importedsteel in March 2002. The tariff, ranging from 8-30%, was purportedly imposed as a means to protect U.S. steel makers from a surge in steel imports, which had previously had a tariff of 0-1%.

Many commentators emphasized that the main motivation for the tariff was likely to be the protection of jobs in rustbelt swing states, such as Ohio, Pennsylvania and West Virginia - ahead of the elections in November that year – rather than antidumping.

In 2003, the World Trade Organisation denounced the tariffs, claiming that steel imports had actually dropped in 2001 and 2002.

There is an extensive literature on the role of political lobbying as a determinant of trade policy. However, the aim of this research was to investigate the incentives for particular trade policy decisions created by electoral systems. In particular, strategical trade policy choice in order to increase the likelihood of winning particular states in a forthcoming election.

Due to the nature of the system, political incentives to protect certain industries may be particularly pronounced in the Electoral College, where electoral success hinges on the voting decisions of ‘swing voters’ in pivotal locations. Swing voters vote based on their assessment of candidates’ stance with respect to trade policy over and above any party allegiance.

Methodology

This paper extends the trade literature using a political agency framework not used before to address trade policy issues. We develop an infinite-horizon, political agency model with a continuum of political districts, where incumbent politicians may improve re-election probability by attracting swing voters through trade protection. For some parameter values a reputation-building equilibrium is shown to exist where incumbents use policy decisions to build a reputation for protectionism, thus swaying voting decisions. Strategic trade protection is found to be more likely when protectionist swing voters have a lead over free-trade supporters in states with strong electoral competition and in states representing a larger proportion of Electoral College votes.

These predictions form the basis of a new concentration measure to capture this form of geopolitical industrial concentration across swing states. We construct this index for the US and test the predictions of the model using non-tariff barrier coverage ratios by augmenting the benchmark empirical specification of Gawande and Bandyopadhyay (2000). The measure is found to be a significant determinant of trade policy, thereby lending support for the theoretical findings.

Key Findings

The results confirm that to garner Electoral College votes political incumbents may deviate from their preferred trade policy, so as to influence voter beliefs about their future trade policy decisions if re-elected.

For distributions of voters where support by swing voters increases re-election probability, a unique equilibrium exists where political incumbents build a reputation of protectionism through policy decisions in their first term of office.

The incentives driving trade policy are shown to hinge on the distribution of swing voters across swing states. This makes trade protection more likely when protectionist swing voters have a lead over free-trade supporters in states with relatively strong electoral competition, that is, swing states, that also represent a larger proportion of electoral votes, thus being more decisive in the overall election.

The analytical results offer a theoretical explanation for why governments may sometimes push for the protection of industries with concentrations in pivotal locations, such as the U.S. steel production industry, or promote free trade in other circumstances, for example, Bill Clinton's ratification of NAFTA.

Electoral incentives may also offer an explanation for the persistent protection of agricultural sectors by developed economies, despite the fact these represents a relatively small share of employment. Although motivated by the U.S. Electoral College, the model also reflects the incentives of parliamentary systems such as that of the United Kingdom, where a party must win a majority in the majority of constituencies in order to win a general election. The framework can be extended to other national policy decisions, such as whether to join the Eurozone or participate in the wars in Iraq and Afghanistan.